Chicago Portrait Co. v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 24 June 1929 |
| Docket Number | Docket No. 21396. |
| Citation | 16 BTA 1129 |
| Parties | CHICAGO PORTRAIT CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Ernest H. Emery, Esq., for the petitioner.
Arthur H. Murray, Esq., for the respondent.
This is a proceeding for the redetermination of a deficiency in income tax for 1923 in the amount of $1,919.59. The only issue is whether taxes paid to the State of New South Wales are taxes paid to a foreign country within the meaning of section 238 (e) of the Revenue Act of 1921. The respondent held that New South Wales was not a foreign country and determined the deficiency in question. The facts were stipulated.
FINDINGS OF FACT.
The petitioner, the Chicago Portrait Co., is a corporation organized under the laws of the State of Illinois, with its principal place of business at Chicago, Ill.
The petitioner keeps its books and files its returns upon the basis of a calendar year. It keeps its books and files its returns upon the accrual basis.
During the calendar year 1923 the petitioner owned 51 per cent of the total capital stock of the International Art Co. of Sydney, Australia, a foreign corporation.
The International Art Co. kept its books on the basis of a fiscal year ended June 30.
The net income of the International Art Co. for the fiscal year ended June 30, 1923, was £7,722.9.0, and for the fiscal year ended June 30, 1924, was £8,170.7.0.
During the calendar year 1923 the International Art Co. declared dividends as follows:
June 30, 1923 ______________________________ £5,953. 1.7
September 15, 1923 _________________________ 1,275.13.3
December 31, 1923 __________________________ 708.14.0
During its taxable year ended December 31, 1923, the petitioner's share of the dividends declared by the International Art Co. amounted to £4,047.8.0 which, converted at the exchange rate at which said dividends were paid, namely, $4.55, amounted to $18,415.67.
The petitioner's share of the dividends declared in 1923 was as follows:
Dividend of June 30, 1923 __________________ £3,036.0.0
Dividend of September 15, 1923 _____________ 650.0.0
Dividend of December 31, 1923 ______________ 361.8.0
The income taxes paid by the International Art Co. upon its net income for the fiscal year ended June 30, 1923, were as follows:
To the Commonwealth of Australia ___________ £395.15.0
To the State of New South Wales ____________ 986.17.6
___________
Total income taxes paid ___________________ 1,382.12.6
The income taxes paid by the International Art Co. upon its net income for the fiscal year ended June 30, 1924, were as follows:
To the Commonwealth of Australia ___________ £365. 4.0
To the State of New South Wales ____________ 1,036.12.6
To the Dominion of New Zealand _____________ 114.11.8
___________
Total income taxes paid __________________ 1,516. 8.2
The exchange rates in effect at the dates the said three dividends were declared were as follows:
Dividend of June 30, 1923 __________________ $4.595
Dividend of September 15, 1923 _____________ 4.545
Dividend of December 31, 1923 ______________ 4.355
In determining the deficiency in question respondent refused to allow as a credit any portion of the income tax paid by the International Art Co. to New South Wales for its fiscal years ended June 30, 1923, and 1924, in the amounts of £986.17.6 and £1,036.12.6, respectively, and also refused to allow as a credit any portion of the income taxes paid to the Commonwealth of Australia and the Dominion of New Zealand.
The respondent concedes that petitioner is entitled to credit against the tax due the United States the income taxes paid to the Commonwealth of Australia and the Dominion of New Zealand computed in accordance with the provisions of section 238 (e) of the Revenue Act of 1921.
The parties have stipulated the facts and have also agreed that the sole question to be determined by us is whether New South Wales is a foreign country within the meaning of the Revenue Act of 1921.
New South Wales, Victoria, Queensland, South Australia, Western Australia, and Tasmania were the six colonies united into a federal commonwealth known as the Commonwealth of Australia, under an enabling Act of the British Parliament dated July, 1900, effective January 1, 1901. The first five of these colonies are on the main land of the island of Australia while Tasmania is a smaller island just south of the island of Australia. New South Wales is the oldest of the six states. In 1788, eighteen years after Captain Cook explored the east coast, Fort Jackson was founded as a penal settlement for criminals from England and transportation was not suspended until about 1839. The legislative power of the State of New South Wales is vested in a federal parliament consisting of the sovereign, a senate and a house of representatives, the sovereign being represented by a governor general, in whom the executive power is vested and who is assisted by an executive council appointed by himself. The constitution, parliament and laws of each state, subject to the federal constitution, retain and safeguard certain important state rights. New South Wales is a separate seat of government within its own boundaries.
The respondent contends that New South Wales is not a foreign country within the meaning of section 238 (e) of the Revenue Act of 1921, which is as follows:
(e) For the purposes of this section a domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends (not deductible under section 234) in any taxable year should be deemed to have paid the same proportion of any income, war-profits or excess-profits taxes paid by such foreign corporation to any foreign country, or to any possession of the United States upon or with respect to the accumulated profits of such foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits: Provided, That the credit allowed to any domestic corporation under this subdivision shall in no case exceed the same proportion of the taxes against which it is credited which the amount of such dividend bears to the amount of entire net income of the domestic corporation in which dividends are included. * * *
The argument of the respondent is that the term "country" is synonymous with the words "nation" or "state" and that in the absence of some qualifying phrase it has always been held to mean the composite whole made up of all the subdivisions of the foreign state subject to the same central control. The respondent argues that New South Wales, in this sense, is not a country but a part of a country.
On the other hand, the petitioner contends that Congress intended to use the phrase "foreign country" in section 238 (e) as inclusive of a taxing jurisdiction imposing an income tax outside of the jurisdiction of the income-tax-levying jurisdiction of the United States.
We can assume that New South Wales is "foreign," in view of the discussion by Chief Justice Marshall in Cherokee Nation v. Georgia, 5 Peters 1, 56, in which the Cherokee Nation of Indians was held a foreign nation. In that opinion it was said:
In a political sense we call every country foreign which is not within the jurisdiction of the same...
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